Identify the Letter of the Choice That Best Completes the Statement Or Answers the Question
102finalmc
Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
____ 1. Lekeisha's income exceeds her expenditures. Lekeisha is a
a. / saver who demands money from the financial system.b. / saver who supplies money to the financial system.
c. / borrower who demands money from the financial system.
d. / borrower who demands money from the financial system.
____ 2. Which of the following is not correct?
a. / When a country saves more, it has more capital.b. / A supplier of loanable funds borrows money.
c. / The interest rate adjusts to balance the quantity supplied of and the quantity demanded of loanable funds.
d. / If Mary buys equipment for her factory, Mary is engaging in capital investment.
____ 3. A certificate of indebtedness that specifies the obligations of the borrower to the holder is called a
a. / bond.b. / stock.
c. / mutual fund.
d. / All of the above are correct.
____ 4. Megasoft wants to finance the purchase of new equipment for developing security software called Doors, but they have limited internal funds. Megasoft will likely
a. / demand loanable funds by buying bonds.b. / demand loanable funds by selling bonds.
c. / supply loanable funds by buying bonds.
d. / supply loanable funds by selling bonds.
____ 5. Which of the following is correct?
a. / Some bonds have terms as short as a few months.b. / Because they are so risky, junk bonds pay a low rate of interest.
c. / Corporations buy bonds to raise funds.
d. / All of the above are correct.
____ 6. A bond that never matures is known as a
a. / perpetuity.b. / an intermediary bond.
c. / an indexed bond.
d. / a junk bond.
____ 7. Compared to long-term bonds, other things the same, short-term bonds generally have
a. / more risk and so pay higher interest.b. / less risk and so pay lower interest.
c. / less risk and so pay higher interest.
d. / about the same risk and so pay about the same interest.
____ 8. You are thinking of buying a bond from Knight Corporation. You know that this bond is long term and you know that Knight’s business ventures are risky and uncertain. You then consider another bond with a shorter term to maturity issued by a company with good prospects and an established reputation. Which of the following is correct?
a. / The longer term would tend to make the interest rate on the bond issued by Knight higher, while the higher risk would tend to make the interest rate lower.b. / The longer term would tend to make the interest rate on the bond issued by Knight lower, while the higher risk would tend to make the interest rate higher.
c. / Both the longer term and the higher risk would tend to make the interest rate lower on the bond issued by Knight.
d. / Both the longer term and the higher risk would tend to make the interest rate higher on the bond issued by Knight.
____ 9. Jerry has the choice of two bonds, one that pays 3 percent interest and one that pays 6 percent interest. Which of the following is most likely?
a. / The 6 percent bond is less risky than the 3 percent bond.b. / The 6 percent bond is a U.S. government bond, and the 3 percent bond is a junk bond.
c. / The 6 percent bond has a longer term than the 3 percent bond.
d. / The 6 percent bond is a municipal bond, and the 3 percent bond is a U.S. government bond.
____ 10. Suppose that the government finds a major defect in one of a company's products and demands that it take it off the market. We would expect that the
a. / supply of existing shares of the stock and the price will both rise.b. / supply of existing shares of the stock and the price will both fall.
c. / demand for existing shares of the stock and the price will both rise.
d. / demand for existing shares of the stock and the price will both fall.
____ 11. World Wide Delivery Service Corporation develops a way to speed up its deliveries and reduce its costs. We would expect that this would
a. / raise the demand for existing shares of the stock, causing the price to rise.b. / decrease the demand for existing shares of the stock, causing the price to fall.
c. / raise the supply of the existing shares of stock, causing the price to rise.
d. / raise the supply of the existing shares of stock, causing the price to fall.
____ 12. Profits paid out to stockholders are
a. / retained earnings.b. / dividends.
c. / the denominator in the price-earnings ratio.
d. / All of the above are correct.
____ 13. ACME Pumps had a price to earnings ratio of 15, paid a dividend of $1, and retained earnings of $2 a share. What was the price of a share of its stock?
a. / $15b. / $30
c. / $45
d. / None of the above is correct.
____ 14. Thomas Publishing has a share price of $30, retained earnings of $1 per share, and a dividend yield of 5%. What is its PE ratio?
a. / 30b. / 20
c. / 15
d. / 12
____ 15. A corporation's earnings are
a. / the amount of revenue it receives for the sale of its products minus its costs of production as measured by its accountants minus the dividends paid out.b. / the amount of revenue it receives for the sale of its products minus its direct and indirect costs of production as measured by its economists minus the dividends paid out.
c. / the amount of revenue it receives for the sale of its products minus its costs of production as measured by its accountants.
d. / the amount of revenue it receives for the sale of its products minus its direct and indirect costs of production as measured by its economists.
____ 16. Thomas Publishing has a price of $20 a share, outstanding shares of 2.5 million, retained earnings of $1 million dollars, and a dividend yield of 2 percent. It has a price to earnings ratio of
a. / 50, which is high by historical standards.b. / 50, which is low by historical standards.
c. / 25, which is high by historical standards.
d. / 25, which is low by historical standards.
Use the following table to answer the following questions.
Table 26-2
Stock / Sym / Yld % / PE / Vol 100s / Hi / Lo / Close / Net ChgBoeing Co. / BA / 1.55 / 30.48 / 4,531,600 / 64.78 / 63.70 / 64.62 / +.93
Eli Lily and Co. / LLY / 2.60 / 29.71 / 3,765,700 / 58.98 / 58.21 / 58.52 / +.16
H. J. Heniz and Co. / HNZ / 3.30 / 15.33 / 1,350,200 / 36.55 / 36.26 / 36.33 / +.21
Kellog Co. / K / 2.22 / 20.50 / 1,990,600 / 45.72 / 45.20 / 45.50 / +.24
____ 17. Refer to Table 26-2. Which company had the lowest dollar dividend?
a. / Boeing Co.b. / Eli Lilly and Co.
c. / H. J. Heinz and Co.
d. / Kellog Co.
____ 18. A checking deposit functions as
a. / a medium of exchange and a store of value.b. / a medium of exchange, but not a store of value.
c. / a store of value, but not a medium of exchange.
d. / neither a medium of exchange nor a store of value.
____ 19. A mutual fund
a. / is a financial market where small firms mutually agree to sell stocks and bonds to raise funds.b. / is funds set aside by local governments to lend to small firms who want to invest in projects that are mutually beneficial to the firm and community.
c. / sells stocks and bonds on behalf of small and less known firms who would otherwise have to pay high interest to obtain credit.
d. / is an institution that sells shares to the public and uses the proceeds to buy a selection of various types of stocks, bonds, or both stocks and bonds.
____ 20. As a money management fee, mutual funds usually charge their customers
a. / between 0.5 and 2.0 percent of assets each year.b. / between 1.5 and 3.0 percent of assets each year.
c. / nothing, because they receive commissions from the firms whose stock they buy.
d. / a flat fee of about $50.
____ 21. Index funds
a. / buy all the stocks in a given stock index.b. / promise to beat the market by a certain percentage known as an index.
c. / provide a return that is adjusted for changes in the consumer price index.
d. / buy industries within a particular category of the North American Industry Classification System.
____ 22. Y = C + I + G + NX is an identity because
a. / each symbol identifies a variable.b. / the right-hand and left-hand sides are equal.
c. / the equality holds due to the way the variables are defined.
d. / None of the above is correct.
____ 23. Consider T-G and Y-T-C.
a. / Each one of these is equal to national saving.b. / Each one of these is equal to public saving.
c. / The first of these is private saving, the second one is public saving.
d. / The first of these is public saving, the second one is private saving.
____ 24. According to the definitions of national saving and public saving, if Y, C, and G remained the same, an increase in taxes would
a. / raise national saving and public saving.b. / raise national saving and raise public saving.
c. / leave national saving and public saving unchanged.
d. / leave national saving unchanged and raise public saving.
____ 25. In the small closed economy of San Lucretia, the currency is the denar. Statistics for last year show that private saving was 60 billion denars, taxes were 70 billion denars, government purchases of goods and services were 80 billion denars, there were no transfer payments by the government, and GDP was 400 billion denars. What were consumption and investment in San Lucretia?
a. / 270 billion denars, 50 billion denarsb. / 260 billion denars, 60 billion denars
c. / 250 billion denars, 70 billion denars
d. / None of the above is correct.
____ 26. The country of Meditor uses the merit as its currency. Recent national income statistics showed that it had GDP of $700 million merits, no government transfer payments, taxes of $210 million merits, a budget surplus of $60 billion merits, and investment of $100 billion merits. What were its consumption and government expenditures on goods and services?
a. / 450 million merits and $150 million meritsb. / 410 million merits and $150 million merits
c. / 330 million merits and $270 million merits
d. / 290 million merits and $270 million merits
____ 27. Which of the following is not always correct in a closed economy?
a. / National saving equals private saving plus public saving.b. / Net exports equal zero.
c. / Real GDP measures both income and expenditures.
d. / Private saving equals investment.
____ 28. Larry buys stock in A to Z Express Company. Curly Corporation builds a new factory. Whose transaction would be investment in the language of macroeconomics?
a. / only Larry’sb. / only Curly Corporation’s
c. / Larry’s and Curly Corporation’s
d. / Neither Larry’s nor Curly Corporation’s
____ 29. Which of the following would be included as investment in the GDP accounts?
a. / the government buys goods from another countryb. / someone buys stock in an American company
c. / a firm increases its capital stock
d. / All of the above are correct.
____ 30. If the demand for loanable funds shifts left, the equilibrium interest rate
a. / and quantity of loanable funds rise.b. / and quantity of loanable funds fall.
c. / rises and the quantity of loanable funds falls.
d. / falls and the quantity of loanable funds rises.
____ 31. If the supply for loanable funds shifts left, the equilibrium interest rate
a. / and quantity of loanable funds rise.b. / and quantity of loanable funds fall.
c. / rises and the quantity of loanable funds falls.
d. / falls and the quantity of loanable funds rises.
____ 32. Which of the following could explain an increase in the interest rate and the equilibrium quantity of loanable funds?
a. / The demand for loanable funds shifted right.b. / The demand for loanable funds shifted left.
c. / The supply of loanable funds shifted right.
d. / The supply of loanable funds shifted left.
____ 33. In 2002 mortgage rates fell and mortgage lending increased. Which of the following could explain both of these changes?
a. / The demand for loanable funds shifted right.b. / The demand for loanable funds shifted left.
c. / The supply of loanable funds shifted right.
d. / The supply of loanable funds shifted left.
____ 34. If the nominal interest rate is 5 percent and the rate of inflation is 2 percent, then the real interest rate is
a. / 7 percent.b. / 3 percent.
c. / 2.5 percent.
d. / .4 percent.
____ 35. What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?
a. / There would be an increase in the amount of loanable funds borrowed.b. / There would be a reduction in the amount of loanable funds borrowed.
c. / There would be no change in the amount of loanable funds borrowed.
d. / The change in loanable funds is uncertain.
____ 36. Which of the following would not be a result of replacing the income tax with a consumption tax so that interest income was not taxed?
a. / The interest rate would decrease.b. / Investment would decrease.
c. / The standard of living would eventually rise.
d. / The supply of loanable funds would shift right.
____ 37. Suppose that a government that taxed all interest income changed its tax law so that the first $5,000 of a taxpayer’s interest income was tax free. This would shift the
a. / supply for loanable funds right making interest rates fall.b. / supply of loanable funds left making interest rates rise.
c. / demand for loanable funds right making the interest rate rise.
d. / demand for loanable funds left making the interest rate fall.
____ 38. Suppose that Congress were to repeal an investment tax credit. What would happen in the market for loanable funds?